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Business Ethics and Corporate Social Responsibility For Business Success and Growth PDF
Business Ethics and Corporate Social Responsibility For Business Success and Growth PDF
ABSTRACT: The concepts of ethical behavior and corporate social responsibility have come to
the fore in recent years in both developed and developing countries as a result of growing sense
of corporate wrongdoing. These two concepts can bring significant benefits to a business. The
idea that business enterprises have some responsibilities to society beyond that of making profits
for shareholders has been around for centuries. The paper addresses the concepts of business
ethics and corporate social responsibility. From the perspectives of MBA students and
managers, it came out that business ethics and social responsibility are very important for
organizational growth and success. Specifically, they consider business ethics to lead to positive
employee, customer and community relations. Not only that but also, they perceive that better
public image/reputation; greater customer loyalty; strong and healthier community relations can
inure to the benefit of corporations that are socially responsible. Implications of the findings are
finally drawn.
KEYWORDS: Business Ethics, Corporate Social Responsibility, and Business Growth.
INTRODUCTION
Ethical behavior and corporate social responsibility can bring significant benefits to a business.
The idea that business enterprises have some responsibilities to society beyond that of making
profits for shareholders has been around for centuries (Barry, 2000). This partly accounts for the
reason why the concept of Corporate Social Responsibility (CSR) has continued to grow in
importance and significance (Carroll & Shabana, 2010). One of the core beliefs is that business
organizations have a social and ethical responsibility, as well as, the economic mission of
creating value for shareholders or owners of businesses (Carroll, 1989). Whereas, the economic
responsibilities of a business are to produce goods and services that society needs and wants at a
price that can perpetuate the continuing existence of the business, and also satisfy its obligations
to investors; ethical responsibilities are those behaviors or activities expected of businesses by
society and other stakeholders such as employees (Ferrell & Fraedrich, 1997).
This paper seeks to answer the following: What are the perceptions of students in Business
Schools on the benefits of CSR and ethics to corporations? What do the business community and
organizations get out of CSR and ethical behavior? That is, how do they benefit tangibly from
engaging in CSR policies, activities and ethical practices? The paper also seeks to articulate what
social responsibility and ethics means, and why it makes good business sense to integrate the two
concepts into strategic decisions, policies and practices of businesses. Specifically, we gauge the
perceptions of MBA students and managers on the following:
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In next to follow, we review the literature on CSR and business ethics to put the study in
perspective. We first explore the concepts of business ethics and CSR; and the relevant
stakeholder groups (internal and external of the firm) involved. This is followed by the
methodology through which data was collected to illuminate the research. Then we present our
findings, discussions and conclusions.
LITERATURE REVIEW
Unethical behavior or inability to demonstrate corporate social responsibility can damage a
firm's reputation and make it less appealing to relevant stakeholders (Daft, 2001). The concepts
of business ethics and social responsibility are often used interchangeably, although each has a
distinct meaning (Carroll, 1989; Daft, 2001; Shaw & Barry, 1995). Whereas business ethics
includes the moral principles and standards that guide behavior in the world of business;
corporate social responsibility (CSR) is an integrative management concept, which establishes
responsible behavior within a company, its objectives, values and competencies, and the interests
of stakeholders (Meffert & Münstermann, 2005). Companies that consistently demonstrate
ethical behavior and social responsibility generate better results (Carroll, 1989).
Business ethics
Ethics are codes of values and principles that govern the action of a person, or a group of people
regarding what is right versus what is wrong (Levine, 2011; Sexty, 2011). Therefore, ethics set
standards as to what is good or bad in organizational conduct and decision making (Sexty, 2011).
It deals with internal values that are a part of corporate culture and shapes decisions concerning
social responsibility with respect to the external environment. The terms ethics and values are
not interchangeable (Mitchell, 2001). Whereas ethics is concerned with how a moral person
should behave; values are the inner judgments that determine how a person actually behaves.
Values concern ethics when they pertain to beliefs about what is right and wrong.
In the business setting, being ethical means applying principles of honesty and fairness to
relationships with coworkers and customers (Daft, 2001). Business or corporate ethics is a form
of applied ethics or professional ethics that examines ethical principles, and moral or ethical
problems that arise in a business environment (Stanwick & Stanwick, 2009). It is an umbrella
term that covers all ethics-related issues that come up in the context of doing business. Business
ethics is defined as the rules, standards, codes, or principles that provide guidance for morally
appropriate behavior in managerial decisions relating to the operations of the corporation, and
business relationship with the society (Sexty, 2011). It applies to all aspects of business conduct
and is relevant to the conduct of individuals and the entire organization (Mitchell, 2001).
Furthermore, business ethics is the behavior that a business adheres to in its daily dealings with
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The growth of business organization relies on its sound ethical code of conduct set to guide both
management and employees in its daily activities (Steve, Steensma, Harrison & Cochran, 2005).
The logic supporting ethics as a good practice, is that, ethical contexts will create the proper
climate which will aid to drive the development of ethical human resource practices (Buckley et
al., 2001). The result is a shared value system that channels, shapes, and directs behavior at
work. The advantages of ethical behavior in business include the following (Mitchell, 2001):
1) Build customer loyalty: A loyal customer base is one of the keys to long-range business
success. If consumers or customers believe they have been treated unfairly, such as being
overcharged, they will not be repeat customers. Also, a company’s reputation for ethical
behavior can help it create a more positive image in the marketplace, which can bring in new
customers through word-of-mouth referrals. Conversely, a reputation for unethical dealings hurts
the company’s chances to obtain new customers. Dissatisfied customers can quickly disseminate
information about their negative experiences with the company.
2) Retain good employees: Talented individuals at all levels of an organization want to be
compensated fairly for work and dedication. Companies who are fair and open in their dealings
with employees have a better chance of retaining the most talented people.
3) Positive work environment: Employees have a responsibility to be ethical. They must be
honest about their capabilities and experience. Ethical employees are perceived as team players
rather than as individuals. They develop positive relationships with coworkers. Their supervisors
trust them with confidential information.
4) Avoid legal problems: It can be tempting for a company’s management to cut corners in
pursuit of profit, such as not fully complying with environmental regulations or labour laws,
ignoring worker safety hazards or using sub-standard materials in their products. The penalties if
caught can be severe, including legal fees and fines or sanctions by governmental agencies. The
resulting negative publicity can cause long-range damage to the company’s reputation that can
even be more costly than the legal fees or fines.
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Step 1: Recognize the ethical dimensions involved in the dilemma or decision. Before making
informed ethical decisions, it is important to recognize that an ethical situation exists. This
enables the definition of the specific ethical issues involved. To have a complete view of
decisions concerning ethics and to avoid ethical quagmires, it is important to consider the ethical
forces at work in any situation, i.e., honesty, fairness, respect for the community, concern for the
environment, and trust.
Step 2: Identify the key stakeholders involved and determine how the decision will affect them.
The business can influence, and be influenced by a multitude of stakeholders (e.g., employees,
customers, community needs). The demands of these stakeholders may conflict with one another,
thus putting a business in the position of having to choose which groups to satisfy or not. Before
making a decision, managers must sort out the conflicting interests of various stakeholders by
determining which ones have important stakes in the situation.
Step 3: Generate alternative choices and distinguish between ethical and unethical responses.
When generating alternative courses of action and evaluating the consequences of each one.
Asking and answering questions and ensuring a balance between the choices can ensure that
everyone involved is aware of the ethical dimensions of the issue.
Step 4: Choose the best or plausible ethical response and implement it. At this point, there likely
will be several ethical choices from which managers can pick. Comparing these choices with the
ideal ethical outcome may help in making the final decision. The final choice must be consistent
with the company’s goals, culture, and value system as well as those of the individual decision
makers. Although an ethical behavior may not be profitable all the time, an unethical behavior
frequently generates substantial losses, especially on a long term (Baron, 1996). Therefore, it is
important for organizations to understand that, regardless the nature of some unethical
consequences and the timing horizon to which they report, on a long term, they represent
considerable costs. Thus, whereas business ethics focuses on the role and responsibilities of
managers and employees as business agents, corporate social responsibility, on the other hand, is
more focused on the corporation (or organization) and its obligations and behavior to other
stakeholders in the larger social system (Daft, 2001).
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Also, the concept of CSR has generated considerable debate in recent decades. On the one hand,
one view holds that, the sole purpose of business is profit. Friedman (1970:32-33) stated that the
resources devoted to CSR are better spent, from a social perspective, if they increased firm
efficiency. Carson (1993:3-32) explained that, managers are put in the place of unelected
officials, when they participate in CSR, hence support has been significantly provided to the
concept of corporate social responsibility. Davis (1974:19) argued that, the public visibility of
corporate actions are necessary to become socially responsible managers and that companies, as
an essential component of society, has a responsibility towards the solution of social problems.
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Consequently, the stakeholder theory became the dominant paradigm in corporate social
responsibility (McWilhams & Siegel, 2001). A well established model of CSR is the ‘Four-Part
Model of Corporate Social Responsibility’ which was initially proposed by Carroll (1979), and
later refined in subsequent publications (i.e., Carroll, 1991; Carroll & Buchholtz, 2000). For
Carroll, CSR is a multi-layered concept that can be categorized into four inter-related aspects
(economic, legal, ethical and philanthropic responsibilities) (Carroll, 1991). These categorized
responsibilities are presented as consecutive layers within a pyramid, and that, ‘true’ social
responsibility requires the meeting of all four levels consecutively. Hence, for Carroll and
Buchholtz (2000:35), “Corporate social responsibility encompasses the economic, legal, ethical,
and philanthropic expectations placed on organizations by society at a given point in time.”
CSR has both economic and legal components/responsibilities for the firm (Carroll, 1991).
Economic: a) it is important to perform in a manner consistent with maximizing earnings per
share; b) it is important to be committed to being as profitable as possible; c) it is important to
maintain a strong competitive position; d) It is important to maintain a high level of operating
efficiency; and e) it is important that a successful firm be defined as one that is consistently
profitable. Legal: a) it is important to perform in a manner consistent with expectations of
government and law; b) it is important to comply with various federal, state, and local
regulations; c) it is important to be a law-abiding corporate citizen; d) it is important that a
successful firm be defined as one that fulfills its legal obligations; and e) it is important to
provide goods and services that at least meet minimal legal requirements.
Furthermore, adhering to CSR principles has benefits to the organization (Carroll & Shabana,
2010; Cavico & Mujtaba, 2012): a) it helps to avoid excessive exploitation of labour, bribery and
corruption; b) companies would know what is expected of them, thereby promoting a level
playing field; c) many aspects of CSR behavior are good for business (e.g., reputation, human
resources, branding, and legislation) which can help to improve profitability, growth and
sustainability; d), in some areas, such as downsizing, it could help to redress the balance between
companies and their employees; and e), potential “rogue” companies would find it more difficult
to compete through lower standards. Moreover, the wider community would benefit as
companies reach out to the key issue of underdevelopment around the world.
Additionally, six major CSR related activities which can generate a positive impact on the firm
are as follows (Kotler & Lee, 2005). First, corporations can provide funds, in-kind contributions
or other resources to build awareness and concern for social cause. Second, corporations commit
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According to Porter and Kramer (2006), under the scrutiny of government bodies, activist
shareholders, and the media, CSR has become “an inescapable priority for business leaders in
every country”. CSR is increasingly becoming a global practice, with businesses based in
different countries tending to pursue approaches that reflect their particular mix of political,
regulatory and financial systems, culture, history and resources. The notion of CSR is
increasingly important in today’s global business climate, as companies compete and pursue
economic growth through internationalization.
There are five major stakeholder groups (internal and external of the firm) that are recognized as
priorities by most firms: owners (shareholders), employees, customers, local communities, and
the society-at large (Carroll, 1991). The concept CSR embraces multiple stakeholders or
partners (employees, customers, suppliers, the environment, local authorities, governments and
others) in addition to shareholders and other investors (Mazurkiewicz, 2005). The quality of
relationships that a company has with its employees and other key stakeholder (i.e., customers,
investors, suppliers, public and governmental officials, activists, and communities) is crucial to
its success, as is its ability to respond to competitive conditions and corporate social
responsibility (CSR) (D’Amato et al., 2009). To implement CSR, corporations need employees
who are committed to, and knowledgeable about corporate citizenship (Friedman & Tribunella,
2012).
CSR provides signals to job seekers about organizational values and norms (Greening and
Turban, 2000). Organizations that project a ‘good’ image provide positive signals to job seekers
(Rynes & Cable, 2003). Employees are primary stakeholders who directly contribute to the
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CSR can, therefore, be seen as a useful marketing tool for attracting the most qualified
employees, and also as an important component of corporate reputation (Fombrun & Shanley,
1990). Accordingly, by enhancing corporate image and reputation, CSR is an appropriate tool for
marketing the organization to prospective employees. Employees are primary stakeholders who
directly contribute to the success of the company, understanding employee reactions to corporate
social responsibility may help answer lingering questions about the potential effects of corporate
social responsibility on firms as well as illuminate some of the processes responsible for them
(Bauman & Skitka, 2012).
Indeed, an aspect of growing importance for both an employer and potential employees is the
‘person-organization-fit’ (POF), the way in which a person fits within his or her working
environment (Gond et al., 2010). According to the European Commission, (2008), workplace
CSR – such as work-life balance, social benefits and health management - has a direct effect on
job satisfaction, staff commitment and loyalty of current employees, and may lead higher
motivation, productivity and innovation. And that, as far as potential employees are able to
evaluate workplace characteristics beforehand, they also have a positive effect on their cognitive
and affective judgment of the company in question. Moreover, when employees view their
organization’s commitment to socially responsible behavior more favorably, they also tend to
have more positive attitudes in other areas that correlate with better performance, such as
customer service and leadership from management (Porter & Kramer, 2006).
In a study with MBA students from two European and three North American business schools, it
was found that reputation-related attributes of caring about employees, environmental
sustainability, community/stakeholder relations, and ethical products and services are important
in job choice decisions (Montgomery & Ramus, 2003). According to the authors, a significant
percentage of the student sample was willing to forgo financial benefits in order to work for an
organization with a better reputation for corporate social responsibility and ethics. Similarly, in a
study in the Greater China (i.e., Mainland China, Hong Kong, and Taiwan), it was found that
CSR related issues (i.e., salary and job prospects, work environment, philanthropic and ethical
policy) are considered important when selecting jobs (Rowley et al., 2013).
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METHODOLOGY
Sampling Procedure
The sample is derived from students of the Maastricht School of Management (MSM); both
MBA students and past students who are practitioners in the business world. The Maastricht
School of Management (MSM) is a globally networked Management School (Annual Report,
2007). Every year, students of MSM are exposed to major corporate scandals through annual
seminars and workshops, since Corporate Social Responsibility and business ethics form an
integral part of their programmes. During such seminars, major international corporations (DSM,
Shell, Heineken, Rabobank, and Dow Chemical) are invited to make presentations, so to expose
the students and staff to new developments regarding implementation of CSR strategies.
In order to get samples for the various categories of participants, two different techniques of non-
probability sampling were used (i.e., Saunders et al., 2007). The email addresses of all the MSM
MBA alumni were collected from the Alumni office, and each manager invited through a letter
to participate. On the other hand, convenience sampling was used to select the MBA students,
since only the email addresses of the Maastricht campus MBA students were available. In all 160
respondents: 80 MBA students and 80 managers were selected for the study. The response rate
was 41 or 51% for MBA students and 72 of 90% for the managers; totaling 113 or 71%. In
terms of gender, whereas 21 or 51%) of the MBA students were male, 20 or 49% were female.
Also, whereas 49 or 68% of the managers were males, 23 or 32% were female. As far as age is
concerned, majority of the participants for both groups were between the ages of 30 and 49 years
old. Also for both categories of participants, 11 or 27% of the students and 10 or 14% of the
managers were between 18 to 29 years old.
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RESULTS
The results are presented in the following steps. We first present the perceptions of participants
on business ethics and CSR. Then, we present their perceptions on the importance or benefits of
CSR to the business or organizations.
Author’s Construct
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Author’s Construct
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DISCUSSION
The findings are in line with earlier studies (e.g., Bello, 2012; Gross & Holland, 2011; Kaptein &
Schwartz, 2008; Lindorff, 2007; McMurrian, & Matulich, 2006; Rowley et al., 2013; Tandberg
& Mori, 2007). As shown in the data, business ethical behavior can lead to a positive customer
and employee relations. Specifically, it was revealed that having and ethical code and training on
that code is important for business growth. Also, in line with previous research (e.g., Kaptein &
Schwartz, 2008), it was found that training employees on best ethical practices can lead to
positive employee relations.
The data also revealed that majority of the students and managers perceive a better public
image/reputation; greater customer loyalty; and strong and healthier community relations will
inure to the benefit of corporations that are socially responsible. These findings appear to be in
tandem with that of the Aspen Institute (2008:15) where students still viewed social
responsibility in a conventional way as “good public image,” and missing its connection to
increased corporate revenues and reduced operating costs.
RECOMMENDATIONS
Also, CSR is not only relevant because of the changing policy environment, but also, because of
its ability to meet business objectives (Carroll, 1991). As the business environment gets
increasingly complex and stakeholders become vocal about their expectations, good CSR
practices can only bring in greater benefits. Undertaking CSR initiatives and being socially
responsible can have the following benefits: strengthening relationships with stakeholders;
attracting the best industry talents; and risk mitigation because of an effective corporate
governance framework (Porter & Kramer, 2006). Additionally, a well-managed CSR creates
social and environmental value, while supporting a company’s business objectives and reducing
operating costs, and enhancing relationships with key stakeholders and customers (Rangan,
Chase, & Karim, 2012). It is therefore imperative that corporations establish a CSR unit whose
primary responsibility is coordinating and integrating all CSR initiatives.
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The objective of the study was to determine students and managers perceptions on business
ethics and CSR in relation to business success or growth. Corporations are facing increasing
demands, and that, they should look beyond their own interests and prioritize those of the
societies in which they operate (Broomhill, 2007). This is because businesses host their
operations within society, and in return, society expects these businesses to show responsibility
for aspects of their operations (Bichta, 2003). It is no longer acceptable for a firm or corporation
to experience economic prosperity in isolation from the stakeholders (D’Amato et al., 2009).
This study showed that many of the MBA students and managers perceive business ethics and
social responsibility as important for organizational growth and success. Specifically, they
consider business ethics to lead to positive employee, customers and as well community
relations. Furthermore, they perceive better corporate image/reputation, greater customer
loyalty; and a strong and healthier community as benefits that can inure to the benefit of
corporations that are socially responsible. It is therefore, important that business schools and
professionals in the corporate world turn their attention to these factors, since they are critical
components in their training and practices. Our study is however without limitations. Further
research with a larger sample of business schools should help us to contribute to this line of
inquiry. These studies may also deploy both the quantitative and qualitative approaches to
research. This has the potential to complement any inherent weaknesses that may exist in either
approach.
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